Malaysian growth slows less than ex­pected as ex­ports hold up

The Pak Banker - - BUSINESS -

Malaysia's growth slowed less than ex­pected af­ter over­seas ship­ments and fac­tory out­put held up, pro­vid­ing some mea­sure of sup­port for an econ­omy fac­ing fal­ter­ing in­vest­ment and higher costs.

Gross do­mes­tic prod­uct rose 4.5 per­cent in the three months through De­cem­ber from a year ear­lier, af­ter climb­ing 4.7 per­cent in the pre­vi­ous quar­ter, the govern­ment said in a state­ment Thurs­day. That com­pares with a 4.1 per­cent me­dian es­ti­mate in a Bloomberg News sur­vey. The econ­omy grew 5 per­cent in 2015.

The ring­git fell more than any other Asian cur­rency against the dol­lar last year, mak­ing Malaysia's goods more at­trac­tive to over­seas buy­ers. That is coun­tered by a slump in crude that has curbed govern­ment rev­enues and prompted Prime Min­is­ter Na­jib Razak to trim the growth fore­cast for 2016, while ris­ing costs crimp busi­ness in­vest­ment. "We are far from up­beat about the prospects for Malaysia this year," said Krys­tal Tan of Cap­i­tal Eco­nom­ics Ltd. "The ef­fects of low com­mod­ity prices will con­tinue to feed through into the real econ­omy, cur­tail­ing in­vest­ment in the en­ergy sec­tor, keep­ing com­mod­ity ex­port in­come weak and hurt­ing fis­cal rev­enue."

The ring­git gained 1.3 per­cent against the dol­lar in Kuala Lumpur Thurs­day, ex­tend­ing its ad­vance af­ter growth and the cur­rent-ac­count sur­plus fig­ures beat es­ti­mates. The Malaysian cur­rency has ap­pre­ci­ated about 3.2 per­cent against the U.S. dol­lar this year, re­bound­ing af­ter a 19 per­cent de­cline in 2015. Bank Ne­gara Malaysia left in­ter­est rates un­changed for a ninth meet­ing last month, while cut­ting the amount of cash banks must set aside as re­serves for the first time since 2009 to boost funds in the fi­nan­cial sys­tem. The cen- tral bank on Thurs­day warned that the econ­omy is ex­pected to face a "chal­leng­ing op­er­at­ing en­vi­ron­ment" with the do­mes­tic de­mand en­gine pro­jected to slow down.

"While the growth in in­come and em­ploy­ment con­tin­ues to sup­port pri­vate con­sump­tion, it is ex­pected to mod­er­ate as house­holds con­tinue to ad­just to the higher cost of liv­ing," it said in a state­ment. "The down­side risks to growth will how­ever re­main, given the con­tin­ued un­cer­tainty in the ex­ter­nal en­vi­ron­ment and the on-go­ing re­forms in the do­mes­tic econ­omy."

Growth is now ex­pected by the govern­ment to be 4 per­cent to 4.5 per­cent this year, com­pared with an ear­lier pro­jec­tion of as much as 5 per­cent. In­fla­tion is pro­jected to rise 2.5 per­cent to 3.5 per­cent this year, higher than an Oc­to­ber fore­cast of 2 per­cent to 3 per­cent. A key con­sumer con­fi­dence gauge fell to a record low last quar­ter, and house­holds are turn­ing more neg­a­tive in their fi­nan­cial out­look for the first half of 2016. The govern­ment agreed to de­lay a plan to dou­ble for­eign worker levies af­ter com­pa­nies protested the move, say­ing it would raise the cost of do­ing busi­ness amid an al­ready dif­fi­cult op­er­at­ing en­vi­ron­ment.

"Malaysia is un­likely to be able to sus­tain its mojo in 2016," said Wei­wen Ng, an econ­o­mist at Aus­tralia & New Zealand Bank­ing Group Ltd. in Sin­ga­pore. "The bal­ance of risks in 2016 are skewed to­wards growth dis­ap­point­ment and fis­cal slip­page with in­fla­tion pres­sures of se­cond or­der con­cern. Struc­turally lower oil prices means that Malaysia will still be con­fronted with sig­nif­i­cant growth and fis­cal head­winds." Ex­ports rose 3.7 per­cent in the fourth quar­ter from a year ear­lier, af­ter gain­ing 3.2 per­cent in the pre­vi­ous three months, the sta­tis­tics depart­ment said.

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